UNDER FTC MARS RULING, REALTORS CANNOT NEGOTIATE SHORT SALES WITHOUT BEING IN COMPLIANCE ($11,00 penalty per day)
This new ruling (16 CFR Part 322) came in under the regulatory framework of the FTC and very people or organizations seem to be aware of it. Please read the ruling. Footnote 126 directly refers to the NAR requesting an exemption for Realtors and the FTC denying such. IF YOU ARE NEGOTIATING A SHORT SALE, YOU MUST BE IN COMPLIANCE WITH THE RULE which is burdensome. I am presenting the first seminar today to a Realtor group and shall hopefully 1)make it out of the seminar alive, 2)provide a process for Realtor compliance so they can continue short sale negotiations. If not, who will handle the negotiations? (most attorneys are overburdened and not knowledgeable in the daily negotiation process).
WHERE WAS OUR REPRESENTATION TO INFORM US OF THIS NEW RULING? Just curious!
126: As a general matter, the Final Rule is notintended to apply to the marketing of services to
assist consumers in selling their properties to third
parties. The Final Rule, however, does specifically
cover the marketing of services involving the sale
of properties to third parties if those services are
designed or intended to assist consumers in
averting foreclosure, e.g., through a short sale or
deed-in-lieu of foreclosure. One commenter urged
the Commission to exempt licensed real estate
professionals from the Final Rule. NAR at 1–2. The
commenter argued the Rule would restrict real
estate agents in helping consumers with the process
of selling their homes through short sales. Id. The
Commission concludes that an exemption for real
estate agents is not necessary. Real estate agents
customarily assist consumers in selling or buying
homes and perform functions such as listing homes
for sale, showing homes, and finding desirable
homes for consumers. The Commission is aware
that real estate agents may perform these functions
when properties are bought or sold through a short
sale transaction, but does not consider these
services to be MARS.
Replies to This Discussion
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Permalink Reply by Smitty on
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Bryant, I want to agree with you...believe me, but I need more clarification.
If the commission felt activities done by Realtors performing short sales we ok, then why weren't Realtors EXEMPT? It clearly states those that assist a homeowner buy and sell property is not considered MARS related, but it also clearly spells out that ANYONE performing short sale activities and negotiating with a mortgage company is performing MARS services.
Ug...every month there is a new regulation or guideline to follow.
Bryant Tutas said:
Smitty. My attorney is reviewing this now and will be writing an article with his opinion. Sorry but I still disagree that this applies to agents.
I really don't know how the FTC could much clearer than this:
"....The Commission is aware
that real estate agents may perform these functions
when properties are bought or sold through a short
sale transaction, but does not consider these
services to be MARS."They are stating this because selling the short sale falls under our normal business practices. We are not being compensated to negotiate a short sale. We are being compensated to list and sell the real estate. The short sale negotiations are just part of that licensed activity. Now if we charges extra for our negotiation services then yes I would agree we'd need to follow this rule to the tee.
Smitty said:Not sure where my post disappeared to but Bryant, my attorney has confirmed if you do short sale negotiations, you need to be compliant.
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Permalink Reply by Bryant Tutas on
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Smitty. We are not exempt because there is nothing to exempt us from if we are negotiating short sales as a part of selling the property. Now I would say these rules do apply if we are:
- Negotiating a loan mod
- Charging an upfront fee (for the short sale negotiations)
- Negotiating as a 3rd party that is not involed in the selling of the real estate.
Because of this they couldn't just give us a blanket exemption as they can an attorney.
Smitty said:
v
Bryant, I want to agree with you...believe me, but I need more clarification.
If the commission felt activities done by Realtors performing short sales we ok, then why weren't Realtors EXEMPT? It clearly states those that assist a homeowner buy and sell property is not considered MARS related, but it also clearly spells out that ANYONE performing short sale activities and negotiating with a mortgage company is performing MARS services.
Ug...every month there is a new regulation or guideline to follow.
Bryant Tutas said:
Smitty. My attorney is reviewing this now and will be writing an article with his opinion. Sorry but I still disagree that this applies to agents.
I really don't know how the FTC could much clearer than this:
"....The Commission is aware
that real estate agents may perform these functions
when properties are bought or sold through a short
sale transaction, but does not consider these
services to be MARS."They are stating this because selling the short sale falls under our normal business practices. We are not being compensated to negotiate a short sale. We are being compensated to list and sell the real estate. The short sale negotiations are just part of that licensed activity. Now if we charges extra for our negotiation services then yes I would agree we'd need to follow this rule to the tee.
Smitty said:Not sure where my post disappeared to but Bryant, my attorney has confirmed if you do short sale negotiations, you need to be compliant.
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Permalink Reply by Mandy Berreth on
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I have read, been explained by the DFI and NMLS and verified with an attorney that if your negotiating a short sale that is YOUR listing and getting paid for negotiating the short sale within your commissions then you would not have to be compliant and get your LO or MLO License, but if you ask for a fee outside of commissions or it is NOT your listing or your a 3rd party negotiator then you WOULD have to get compliant. It is what it is.... But I agree its not something that all Short Sale negotiators are aware of or were told.
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Permalink Reply by Kimberley Kelly on
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I'm with Mandy here, but read the entire exchange and as usual had to really think about everything you all said regarding the MARS. I think it has to do more with 3rd party negotiators and people taking fees upfront than Realtors selling their own listings and working them as a normal real estate transaction. Thanks again to you all..great information as usual.
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Permalink Reply by Todd J Sullivan J.D. on
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This is an interesting discussion on the applicability of the FTC MARS ruling and whether Realtors who negotiate short sales must comply with the new ruling. Excluding myself, six (6) other Attorneys from my firm and outside council have reviewed the complete FTC Rule and associated footnotes including NARS submitted and denied request for exemption. Everyone is in full agreement that the Rule applies to Realtors who are negotiating short sales as part of their normal real estate activities. Here's the definition:
(i) ‘‘Mortgage Assistance Relief
Service’’ means any service, plan, or
program, offered or provided to the
consumer in exchange for consideration,
that is represented, expressly or by
implication, to assist or attempt to assist
the consumer with any of the following:(6) Negotiating, obtaining or
arranging:
(i) A short sale of a dwelling,
(ii) A deed-in-lieu of foreclosure, or
(iii) Any other disposition of a
dwelling other than a sale to a third
party who is not the dwelling loan
holder.PART I: Must Realtors who Negotiate Short Sales Comply with the MARS Rule?
The issue is whether securing a short sale listing in part, due to the offer of free negotiating services constitutes "EXCHANGE FOR CONSIDERATION". In our opinion, receiving a commission in exchange for services where such services include negotiating the short sale constitutes consideration.
However, we do not even have to argue that point as the National Association of Realtors tried to exempt Realtors from the Rule prior to the Rule's implementation.
126 As a general matter, the Final Rule is not
intended to apply to the marketing of services to
assist consumers in selling their properties to third
parties. The Final Rule, however, does specifically
cover the marketing of services involving the sale
of properties to third parties if those services are
designed or intended to assist consumers in
averting foreclosure, e.g., through a short sale or
deed-in-lieu of foreclosure. One commenter urged
the Commission to exempt licensed real estate
professionals from the Final Rule. NAR at 1–2. The
commenter argued the Rule would restrict real
estate agents in helping consumers with the process
of selling their homes through short sales. Id. The
Commission concludes that an exemption for real
estate agents is not necessary. Real estate agents
customarily assist consumers in selling or buying
homes and perform functions such as listing homes
for sale, showing homes, and finding desirable
homes for consumers. The Commission is aware
that real estate agents may perform these functions
when properties are bought or sold through a short
sale transaction, but does not consider these
services to be MARS.So, if you are doing business in the Normal Course of Business, you are not providing MARS related services (which are defined as negotiating short sales*) and do not have to comply with the Rule. However, if you are negotiating short sales as part of your commission, such negotiating is not a Traditional Realtor service such "selling or buying homes and perform functions such as listing homes for sale, showing homes, and finding desirable homes for consumers." With this additional information that NAR's request for an exemption for Realtors negotiating with lenders on short sales was disallowed by the FTC, the original issue in regards to whether Realtors who do not receive compensation for (outside of their commission) negotations are still implicated in the Rule becomes moot.
PART II: If Realtors must comply with MARS, What Does That Mean?
Although it's another layer of bureaucracy and hassle, the actual compliance is not as bad as it would seem. It breaks down to the following areas: a)No Advance Fees Allowed, b)Prohibited Representations, c)Disclosures, d) Recordkeeping. Fortunately, there are no additional licensing requirements, insurance or other regulatory control. If you are in compliance with the above elements, you absolutely may continue negotiating short sales as part of your Real Estate Practice.
PART III: Interesting, But What If I am Not In Compliance and Continue Negotiating My Short Sales?
According to several other sections of the FTC, penalties are up to $11,000 per day for noncompliance. However, let's examine the mechanism of enforcement for the Rule. First caveat; I would never advise or suggest that any individual should not comply with the law and highly recommend any Realtor that is negotiating short sales as part of their normal course of business to be compliance. However, the regulatory framework for enforcement primarily places the burden on the individual State's Attorney General to enforce (another federal regulatory enforcement agency will be created by summer of 2011). Although the FTC will and does regularly litigate against rule violators and typically succeeds in such litigation, a normal consumer cannot report a violation to the FTC and have the FTC act on such information on behalf of the consumer. That leaves your State's Attorney General to enforce the rule. I called my State AG's office yesterday to understand better how to report a Rule violation. After being put on hold for 20 minutes, I was finally able to speak to a live representative. Unfortunately, they had no boxes to fill-in for FTC violations where the AG's office was responsible for enforcement and the best she could offer was to send me a general form to fill out and return at my leisure. I passed. I will let you make your own observations on how responsive your State AG's office will be in pursuing claims of Rule violations.
PART IV: What's The Worry?
What concerns me the most about this situation is how the National Association of Realtors has not represented their constituents and/or informed us of this rule. Let me pose this question to the group (and thank you for listening to me!):
"If your local, regional and/or NAR decides that Realtors cannot negotiate short sales without being in compliance of the MARS Rule, than through their respective Association and Regulatory Processes (Commissioner Rules for AZ), will they Not Allow such Realtor activities due in part to liability issues stemming from noncompliance with a Federal Rule?"
CONCLUSION:
First, thank you for the opportunity to share my information with the group and I so much appreciate this platform for good discussion on all these topics. It's proved to be an invaluable tool that we use every day to fight for our clients in the short sale negotations.
Second, let's put some pressure on our local, regional and national associations that exist to help us in these matters. We all pay large sums to these groups for our licensing and dues. They should be able to provide clarity to this issue. How many agents are negotiating short sales across the country now? 100,000? 200,000? If I am right about this issue (and I hope I'm not*), that is a tremendous amount of liability right now with no direction from our associations.
Thanks for listening!
tjs
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Todd, my lawyer said the same thing. Buying and selling is not an activity that needs to be covered by MARS but the minute negotiating is involved an agent needs to be compliant.
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Yep. I'm still shocked at NAR. In my research, I found the NAR letter to the FTC which tried to exempt Realtors from the Rule. To my limited knowledge, I can't find any more information or effort on the part of NAR. Regardless, there has been no direction or information from NAR to state or local associations on this subject. NAR has 1.2 Million members who are active (dues paying) Realtors. How many are doing short sales? How many are "potentially" liable under this Rule and why weren't we notified.
Maybe I'm just steamed because I had to pay my yearly dues.....
I attached the NAR letter to the FTC if anyone's interested.
I'll be emailing Scott Rinn at [email protected] who is the Senior Regulatory Policy Representative and
Ken Trepeta at [email protected] for some clarification on this issue.
Everyone, Please feel free to email the above. Clarity would certainly help in this matter.
Thanks for listening!
tjs
- Attachments:
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NAR Comment Letter on MARS.pdf, 121 KB
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Permalink Reply by The Trent on
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I don't see a problem with making the small effort to go ahead and add the extra disclosure as the FTC wants. To me that is the easy solution and I am now doing it just to cover my myself. I understand that all of this argument is good & it is also good that everyone is getting their lawyer to look at it, but who wants to be the one to set the case law in this? Not me.
Just disclose as the FTC recommends. It is only a few extra docs.
I also agree with Todd that NAR is worthless on all this. My state and local Realtor associations have not made a statement on this either.
If you are talking to banks on your clients behalf you are negotiation short sales. I c an't believe it is taking so long for Realtor associations to make a statement/recommendation o this matter, but it does not surprise me at all with NAR.
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Permalink Reply by Michael Schneider on
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I think Todd's/Trent's advice is sound. If you are negotiating the short-sale on your listing, probably better to be in compliance. (Meaning, if you are calling the owner's Servicers/Lienholders to secure release for materially less than the amount owed.) I spent an afternoon reading the Final Rule carefully, and then updating my agreements and processes to be fully compliant.
The major issue, I think, is upfront fees for investor properties. Why should I be restricted from taking an upfront fee on a non owner occupied, investment proptery? Makes no sense. You need the fee to ensure committment.
My read of the Rule is that the broker or firm could be liable for the non-compliance of their agent. So, if it were my firm, I think I'd want my agents to comply.
In many ways, I think the FTC is displaying a lack of understanding of the real estate sales process and of short-sale negotiations. They swept this in with loan modification, thereby demonstrating their lack of knowledge or understanding of short sale negotiations.
The unintended consequence of the FTC Rule may be to help Investor and Insurers, to the detriment of consumers.
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Hi guys. Here's the response from Richard Zaretsky, Esq. He's the attorney I use on Florida for all things short sale.
I guess I was wrong. I hate it when that happens!!
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If I had a Dollar for every wrong comment I've made, I wouldn't be living my Short Sale dreams right now!
**I'm still upset at NAR. I drafted a demand for response letter dated February 1, 2011 and did hear immediately from one of the responsible members who were in charge of the objection letter to the FTC with respect to NAR's request for exemption. From his comment, NAR's attorneys in Chicago are "examining" the Rule and it's impact.
Gotta love it!
Wish I could charge like those Chicago Lawyers........
Bryant Tutas said:
Hi guys. Here's the response from Richard Zaretsky, Esq. He's the attorney I use on Florida for all things short sale.
I guess I was wrong. I hate it when that happens!!
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Bryant,
The solution to this is to go out on a limb only for things you don't want. Eg, "Man, no way is the Investor going to waive the deficiency for $3,000".
That way, you get to feel really good, when you are wrong.
Thanks for posting this, it's a good read.
Bryant Tutas said:Hi guys. Here's the response from Richard Zaretsky, Esq. He's the attorney I use on Florida for all things short sale.
I guess I was wrong. I hate it when that happens!!
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